Emerging Leaders Roundtable: Critical infrastructure for development

Posted on November 11, 2015

| By Anna Kirk, Jenny Hayward-Jones

The Lowy Institute for International Policy convened a roundtable of Papua New Guinea’s emerging leaders in Port Moresby on 11 August 2015, alongside the exclusive ANZ insight business conference which launched the report, ‘Powering PNG into the Asian Century’.[1]

Participants included young leaders from government and business in Port Moresby as well as alumni from the Lowy Institute’s Australia-Papua New Guinea Emerging Leaders Dialogue.

Discussion focused on critical infrastructure for development in Papua New Guinea, building on the presentations and conclusions of the ANZ insight conference.

Role of the private sector in delivering critical infrastructure

The purpose of the ANZ insight report is to promote growth, reform and flexibility in order to meet electricity supply targets set by the Papua New Guinea Government. The report aims to start a conversation about how to solve infrastructure problems in relation to PNG’s energy sector.

The report is based on the premise that “PNG’s development ambitions cannot be achieved without energy supply improvements, delivered at a pace and scale that are unprecedented.”[2] To that end:

“Supply must increase by 225%, or 7.2% per year to meet PNG’s stated development goals, with the fastest growth in rural areas where current electricity outcomes and capabilities are weakest. At a minimum, achieving PNG’s target of 70% of the population having access to electricity means rural access rates will need to rise from 7.6 per cent to close to 65%. Over two thirds of new demand is likely to arise beyond PNG’s current or future electricity grid.”[3]

While attention in the past has been on large-scale, state-owned investments in infrastructure, in particular in the power sector, the report suggests Papua New Guinea could introduce a series of structural reforms to enable and encourage entrepreneurship at the community level in the power sector. Large-scale power projects cannot meet the needs of the entire population. A one-size-fits-all approach will not work in a country as diverse as Papua New Guinea.

A sentiment that the majority of rural Papua New Guineans could not afford to pay for electricity has constrained innovative approaches to progressing electricity generation beyond urban areas. But the take-up of mobile phones in rural areas has challenged this idea. In addition to encouraging innovation and the use of new technology in extending electrification options in rural areas, innovative approaches to financing and to charging for electricity services need to be explored.

There is a tendency in governments the world over to centralise infrastructure planning, which leads to a preference for large projects and systems that are not suitable for all consumers. In relation to energy supply, Papua New Guinean communities would be better served with simpler and smaller options that can be tailored to their needs. These could include mini hydro dams in areas where rainfall is high or solar photovoltaic panels in sunny areas. Different technologies and systems will work in different places. Low-tech options, for example coconut biodiesel, might be more appropriate for small coastal or island communities. Ultimately, delivering affordable electricity to rural communities will enable them to opt to participate in the formal economy and remain on their traditional land rather than putting more pressure on urban centres.

Alternative approaches to energy supply are needed at the village level (photo courtesy of Flickr user Kahunapule Michael Johnson).

Power costs in Papua New Guinea are prohibitively high, acting as a disincentive for small to medium sized businesses and putting strain on household budgets.

While the state-owned Papua New Guinea Power Ltd has an important role in managing the existing infrastructure and in delivering electricity to urban centres, the needs of rural areas require a variety of approaches that one company cannot provide.

The challenges facing Papua New Guinea Power Ltd are common to many state-owned enterprises, including PNG Ports. Shipping costs are a major constraint on business development. Start-up costs in the power sector will be significant, particularly in remote areas, but it is important that government and private sector partners remain focused on the long-term benefits of electrification. Participants recalled important points made by ANZ insight conference speakers, including Grant Mitchell from Port Jackson Partners and Geoff Culbert from GE:

It is the role of government to invest in quality of life infrastructure that may not yield short-term economic benefits.

However, a nation’s challenges cannot be solved by government alone.

Innovative thinking and collaboration between government and industry is needed.

Maintenance of infrastructure is critical but the political incentives for ensuring it are lacking. Far greater emphasis is placed on ‘cutting a ribbon’ on new infrastructure developments than on managing existing infrastructure so that it can be used to its full potential.

Participants said that although the private sector is known for its competitiveness and for making services and consumer goods cheaper, there is concern that foreign companies take advantage of the weak regulatory system and the gaps in the local business culture in Papua New Guinea, which often means there is little competition and making it difficult to encourage cheaper services.

The majority of the population working in agriculture in Papua New Guinea feel that they are marginalised from national infrastructure priorities. The emphasis on ports and roads in recent years should have benefited farmers but policies to improve infrastructure to help farmers have lacked cohesion. Greater access to electricity might help with options such as refrigeration of fruit and vegetables or downstream processing.

Participants believed that different districts in Papua New Guinea have different expectations about the most appropriate sources of power. The topographic complexity of Papua New Guinea means that solar power, for example, is not appropriate in many parts of the highlands, which do not see much sun. Power supplied through mini hydro projects could work in some circumstances and assist the development of agricultural businesses. A lack of understanding of the options available for both the supply and financing of power constrains community demand for power supply.

There is a big difference between electricity and other forms of infrastructure. Electricity supply in villages does not mean households have to be connected to a grid in the way that mobile phone users have to sign up to a telecommunications network. Electricity supply can be managed with community solutions without the need to revert to company headquarters in the capital.

Regulations and regulators in infrastructure, including power supply, in Papua New Guinea are weak. While this makes it difficult to manage nationally important infrastructure and isolates rural communities from infrastructure they need, it also means individuals and communities can develop their own solutions to infrastructure gaps — if they can find the means of funding them.

The cost of building and maintaining infrastructure in Papua New Guinea is high. There is a strong public perception that infrastructure is centred on Port Moresby and other urban areas, even though the majority of the population live in rural areas. This contributes to increasing urbanisation and associated social problems as people lack incentives to stay in rural areas. Rural dwellers say it is difficult to attract financial support from the government for measures that encourage rural development. Building and maintaining roads in Papua New Guinea is a major challenge, which negatively affects internal trade.

Participants said bureaucratic inertia or lack of capacity in government can often be as important a contributing factor to the poor state of infrastructure in Papua New Guinea as the lack of funding or rural or topographic challenges.

Financial inclusion

Financial inclusion in Papua New Guinea is weak. According to one participant, only 700 000 Papua New Guineans, less than 10 per cent of the population, have bank accounts. The government, commercial banks and Papua New Guinea’s international partners are trying to improve this through initiatives such as mobile phone banking and micro banks. There are a number of barriers to achieving major improvements in financial inclusion, including the widespread problem of the lack of formal personal identification documents.

Financial inclusion and financial literacy training is important but it is difficult for people, particularly in rural areas, to leverage this training for other purposes such as small business development. Participants believe that Papua New Guinea also has a poor savings culture that is not easily addressed by more training or improved financial literacy.

Encouraging the development of small business is critical for the broadening of Papua New Guinea’s economy. The Papua New Guinea Government manages a few initiatives in support of small business development but does not devote sufficient resources to assist more than a small number of businesses. The National Development Bank’s Stret Pasin Stoa (retail incubation) scheme is popular with young people but it, like many other government initiatives, has funding constraints which limit its reach. There are additional schemes run by donors or non-government organisations, some of which are having a valuable impact on communities. Participants believe that organisations that work in partnership with relevant institutions and enabling organisations in this field have a better chance of success.

Participants in the National Development Bank’s Young Enterprise Scheme (photo courtesy of the National Development Bank).

Funding of small businesses is highly challenging in Papua New Guinea. The vast majority of people who are capable of establishing and maintaining a small business do not have and cannot access the capital they need to establish a business. Commercial banks do not lend to start-up enterprises. Venture capital is not available. There are few government incentives for start-up enterprises. The high failure rate of start-ups, which is not unique to Papua New Guinea, and the preference of most young Papua New Guineans to obtain secure employment so they can meet their family’s expectations to provide for them, also constrains small business development.

Participants said more support for women in business would be valuable as women face a number of unique challenges in running businesses, particularly in areas where personal security is problematic. There are some existing, constructive initiatives in this area. However, participants believe the numerous rival organisations seeking to raise funding from a limited pool in order to promote women in business risks causing confusion and ultimately not delivering the outcomes talented women need.

Conclusions

The young leaders saw the value in encouraging investment in new energy technologies to provide quicker pathways to electrification in rural communities. They recommended that the government and private sector in Papua New Guinea explore innovative financing options to enable access to these new technologies.

The participants called for the creation of space for young entrepreneurs to fill the gaps in service delivery that the government and state-owned enterprises are not equipped to meet.

The biggest obstacle for small businesses across every sector in Papua New Guinea is access to financing options. A number of participants recommended that alternative sources of raising capital for small businesses which have proven to be effective in other countries be considered in Papua New Guinea, including through official partnerships between governments, multilateral institutions and the private sector.

About the Authors

Anna Kirk

Project Director, Aus-PNG Network

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Anna Kirk was Research Fellow and Project Director of the Aus-PNG Network at the Lowy Institute, where her work focused on Australia’s relations with Papua New Guinea and the Pacific Islands. Anna holds a Bachelor of International Studies from the University of Queensland, with majors in Peace and Conflict Studies and Spanish. Anna grew up in Port Vila, Vanuatu. During her undergraduate degree she spent a semester studying Spanish language at the Universitat Pompeu Fabra in Barcelona. In 2013, Anna spent six months teaching English in Santiago, Chile.

Jenny Hayward-Jones

Former Director Melanesia Program, Lowy Institute

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Jenny Hayward-Jones is the former Director of The Melanesia Program at the Lowy Institute. Prior to joining the Lowy Institute Jenny was an officer in the Department of Foreign Affairs and Trade for thirteen years, serving in the Australian missions in Vanuatu and Turkey. She worked as Policy Adviser to the Special Coordinator of the Regional Assistance Mission to Solomon Islands from its inception in July 2003 and in 2004. Jenny holds a BA (Hons) in political science from Macquarie University; her Masters thesis for Monash University focused on governance and political change in Vanuatu. Jenny’s interests focus on Australian policy in the Pacific Islands region, political and social change in Melanesia, and the strategic and economic challenges facing Pacific Islands in the Asian century. She is the author of two Policy Briefs on Fiji and several reports from major conferences on regional issues, on PNG and on Solomon Islands that she has convened in Australia, New Zealand and Solomon Islands.